The world’s supply of quality education isn’t keeping pace with global demand, creating a fruitful environment for private investment, according to a report by investment consultancy Parthenon-EY. Investment activity over the last decade has boomed, with no sign of abating as technological advancements drive growth.
A report presented by Parthenon-EY at the Qatar Foundation’s World Innovation Summit for Education last week notes that since 2000, mergers and acquisitions have increased sixfold in emerging market education sectors.
“Private equity from across the world and funds that have traditionally not looked at education are waking up”
The sector is expected to build on this growth and continue to attract attention from a wider base of investors, according to the consultancy.
“Private equity from across the world and funds that have traditionally not looked at education are waking up so are going to be a lot more organised when looking at private education as an investment mode,” report co-author and managing director at Parthenon-EY, Ashwin Assomull, told The PIE News.
“The more local private equity guys will look at it too and in the regions like the Middle East we’re seeing a lot of family money looking to pile into education.”
Assomull also expects new investment models, including crowd funding and social finance, will be more available in the future.
The report argues that more private capital in education will increase access, allow providers to scale operations and can improve quality across all sectors. However, it calls for government regulation and a balancing of power among students, investors and educators.
“What governments will spend more time doing is working out how do we ensure that we balance the needs of all the stakeholders; make sure that the investors are attracted to come in but also make sure we maintain quality for students and affordability for parents,” said Assomull.
The report draws on UNESCO data which shows government expenditure on education is 20% or below in most low- and lower-middle income countries around the world.
As a result, over the past three decades, private investment has increased, improving economies and creating more demand for education. But governments are struggling to keep up with the newfound interest, according to report co-author Mary Abdo, managing director at Parthenon-EY.
“This is a story of what’s going on in the emerging market education sector, we see this great expansion of access at primary and secondary schools over the last 30 years, secondary enrolments have increased by four times in emerging markets and primary enrolments have doubled,” she said.
“That’s creating pressures throughout the education system on governments to provide spaces for people.”
The report points out that the growth has resulted in oversubscription of university places by 20-50% in many emerging markets. Such is the case in India, said Abdo.
“At current rates of college capacity growth and given its population growth, India will have more adults who don’t have a college education in 2020 than it does today, which is pretty counterintuitive and quite scary if you consider the need for sustained economic growth,” she said.
Ed tech poses the greatest solution for scalability and is therefore the most attractive sector for investors, especially venture capitalists, according to the report.
“As much as venture capitalists like to do good, we also have an obligation to do well”
It uses the MOOC platform Coursera as a case study, highlighting its two series of funding, which raised $22m and $63m each. Despite being a free education platform, investors are confident the company will deliver returns.
“As much as venture capitalists like to do good, we also have an obligation to do well. From what we’ve seen so far… Coursera is on the right track to do both,” Scott Sandell, managing partner at New Enterprise Associates, said.
Technology also enables the world’s largest education company, Bridge International Academy, which serves families living on less than $2 a day, to scale operations to hundreds of schools, the report notes.
Technology is used to track teacher and student performance and automate processes such as classroom delivery and financial management at Bridge.
“In addition to the excitement around companies developing MOOCs and adaptive learning tools, investors are also interested in the adaptation of technology in traditional education businesses and how its use can profoundly affect operators’ ability to scale and grow,” the report states.
Abdo added that for scalability to be successful, it must be part of educators’ operations from the beginning: “Education is highly contextual, whether one individual model can expand and be exactly replicated from one market to another remains a question but a good education offering will be desirable regardless of the market you bring it into.”
